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Meta and Microsoft facing AI hype hangover on top of tariff headwinds

Earnings from the tech giants dominate the week, with Microsoft and Meta taking the field today. After a year of AI-fuelled hype, investors want proof that all the big talk and even bigger spending is translating into sustainable growth, or at the very least has shown the first signs of doing so.

Meta enters its Q1 2025 results with its share price down a quarter from February highs. Revenue is forecast to rise 13.6% year-on-year to $41.4bn and EPS to grow 12.2%. This clearly isn’t a bad place to be, but it’s a marked slowdown from last quarter’s 20%+ growth and would be Meta’s weakest earnings rise since Q1 2023. The company’s ad engine – still responsible for 96% of revenue – is starting to sputter under the weight of tariff-related pressures and falling demand from Chinese advertisers like Temu and Shein.

At the same time, Meta is pressing ahead with its $60–65bn capital spending plans, mostly targeting AI and advertising infrastructure. With margins set to drop from 43.1% to 32.5%, investors need to see more than user growth and flashy AI demos. They’ll want signs that smarter ads and higher pricing are offsetting the economic drag, and that the company has plans to counter any slowdown that can hit margins.

Microsoft, meanwhile, is still feeling the heat from last quarter’s cloud miss. Azure revenue growth slowed and guidance underwhelmed, prompting a 6% drop in share price. This quarter, revenue is expected to come in at $68.4bn, flat quarter-on-quarter, with EPS at $3.22. Investors will be watching Azure closely – if Microsoft can’t keep its cloud momentum, questions about its dominant AI positioning will follow.

Its $13bn AI revenue run rate is impressive, but without clearer signs of monetisation from products like Microsoft 365 Copilot and the Azure OpenAI Service, enthusiasm will fade. Unlike Meta, Microsoft is less directly exposed to tariffs, but if enterprise budgets tighten, even its subscription-based business model could feel the squeeze.

For Microsoft, the decline in its stock price has been less severe, down 11% from its January highs, but its own record high is now eight months in the past, a clear sign that the group has yet to spin a compelling story for investors.

Both giants are entering this earnings season at a crossroads. The AI story is no longer enough – now it’s time to show where the money has gone.

Author

Chris Beauchamp

Chris Beauchamp has been with IG for four years, and in that time has become a regular commentator and analyst for the financial press and TV, with appearances on all the major financial channels as well as the BBC and Sky News.

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